Homebuilding Probably Climbed With Sales: U.S. Economy Preview

Last year marked the worst year for the industry in records going back to 1963, as builders sold 306,000 new homes, down from 323,000 in 2010. Photographer: Patrick Fallon/Bloomberg

Sept. 16 (Bloomberg) -- New home construction and sales of
previously owned houses probably climbed in August, a sign
residential real estate is one of the economy’s few bright
spots, economists said before reports this week.

Housing starts increased to a 765,000 annual rate, the
fastest in almost four years, from a 746,000 pace in July,
according to the median forecast in a Bloomberg survey.
Existing-home purchases advanced to a three-month high, while
manufacturing contracted in two regions in September, other
reports may show.

Record-low borrowing costs and cheaper properties are
spurring sales and helping mend an industry more than three
years after the end of the recession. To help bolster the
economy and employment, the Federal Reserve announced last week
a plan for open-ended purchases of mortgage-backed securities.

“I do think that we’re getting close to the point where we
are going to get some sort of significant contribution from
housing,” said Mark Vitner, a senior economist at Wells Fargo
Securities LLC in Charlotte, North Carolina. At the same time,
“there’s still a lot of headwinds in place -- a lot of
potential buyers lack the equity and savings to trade up.”

The Commerce Department will release housing starts data on
Sept. 19. Sales of existing homes, due the same day from the
National Association of Realtors, climbed to a 4.56 million
annual rate from 4.47 million, the survey median showed.

2011 Sales

Sales of new properties made up 6.7 percent of the
residential market in 2011, down from a high of 15 percent
during the boom of the past decade. Last year marked the worst
year for the industry in records going back to 1963, as builders
sold 306,000 new homes, down from 323,000 in 2010.

A report from the National Association of Home Builders and
Wells Fargo on Sept. 18 may show builder confidence climbed to
the highest level since February 2007, according to a Bloomberg
survey.

Real estate developer and forest-products company
Weyerhaeuser Co. is seeing improvement in the housing market
even as concern about domestic fiscal policy tempers optimism.
The Federal Way, Washington-based company’s year-over-year home
sales are up about 40 percent, Patricia Bedient, executive vice
president and chief financial officer, said at a Sept. 12
conference.

“Traditionally you wouldn’t expect a housing market to be
increasing seasonally for this period of time, but it appears to
continue to improve,” Bedient said. “Lest we get too excited,
I think it will be steadily improving but probably a slow
recovery subject to whatever happens at the end of this year.”

Mortgage Rates

Borrowing costs remain favorable. The average rate on a 30-year fixed mortgage held at 3.55 percent in the week ended Sept.
13, near a record-low of 3.49 reported July 26 in data dating to
1971, according to McLean, Virginia-based Freddie Mac.

Investors have become more upbeat about housing. The
Standard & Poor’s Supercomposite Homebuilding Index has advanced
83 percent so far this year, outpacing an almost 17 percent gain
in the broader S&P 500.

The lack of progress in the labor market persuaded the Fed
to announce further accommodation last week. The Fed said it
will expand its holdings of long-term securities with open-ended
purchases of $40 billion of mortgage debt a month in a third
round of quantitative easing as it seeks to boost growth and
reduce unemployment.

“If the outlook for the labor market does not improve
substantially, the committee will continue its purchases of
agency mortgage-backed securities, undertake additional asset
purchases and employ its other policy tools as appropriate,”
the Federal Open Market Committee said Sept. 13 in a statement
at the end of a two-day meeting in Washington.

Fed Statement

The FOMC said it would probably hold the federal funds rate
near zero “at least through mid-2015.” Since January, the Fed
had said the rate was likely to stay low at least through late
2014. The Fed said “a highly accommodative stance of monetary
policy will remain appropriate for a considerable time after the
economic recovery strengthens.”

Manufacturing has been weakening along with the global
economy. A Federal Reserve Bank of New York report on Sept. 17
may show manufacturing in the New York area contracted for a
second straight month in September, according to the Bloomberg
survey median. The Federal Reserve Bank of Philadelphia is
forecast to report on Sept. 20 that manufacturing shrank for a
fifth consecutive month, another Bloomberg survey projects.